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Report says FERC needs to change cost allocation for new transmission

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Peter Key's picture
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I've been a business journalist since 1985 when I received an MBA from Penn State. I covered energy, technology, and venture capital for The Philadelphia Business Journal from 1998 through 2013....

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To speed the development of proposed transmission projects that would boost renewable generation development, the Federal Energy Regulatory Commission needs to alter the methods for allocating their cost, a recent report says.

“Disconnected: The Need for a New Generation Interconnection Policy,” which was released earlier this month, also recommends that FERC and transmission planning authorities expand and improve the regional and inter-regional planning process by making it proactive; having it incorporate future generation additions and retirements; and spreading the cost of new transmission infrastructure among all who benefit from it.

The report was sponsored by Americans for a Clean Energy Grid, a nonprofit that advocates expanding, integrating and modernizing the North American power grid. Its sponsors are transmission owner ITC Holdings, renewable energy developer Enel North America, transmission advocacy group WIRES and the American Clean Power Association, whose members are largely investor-owned utilities with renewable generation and renewable energy contractors. Americans for a Clean Energy Grid also has supporters, most of which are renewable energy advocates, such as the American Council on Renewable Energy and sustainable energy nonprofit Ceres.

The Macro Grid Initiative, which supported the report, promotes investment in a 21st century transmission infrastructure that boosts reliability, efficiency and clean-energy generation. It’s a joint effort between Americans for a Clean Energy Grid and the American Council on Renewable Energy, a nonprofit that calls itself the focal point for collaborative advocacy across the renewable energy sector and whose members include large energy producers and customers.

The report was prepared by Grid Strategies, a consulting firm that helps its clients understand the opportunities for and barriers to integrating clean energy into the grid.

The report says that the current system of planning and allocating the cost of new transmission infrastructure is so unworkable that it has created a huge backlog of proposed generation projects, with 734 gigawatts of them in interconnection queues at the end of 2019. That backlog, the report says, hurts the country in three ways.

First, it boosts the cost of power by slowing the construction of new generation — typically renewable — that produces electricity more cheaply than existing generation while hiking the price of each new generation project. Although FERC and the nation’s regional transmission organizations and independent system operators have undertaken reforms to alleviate interconnection backlogs, their continuing existence increases the risk — and therefore the cost of capital — for generation developers, the report says. A comprehensive approach to building the transmission infrastructure needed to connect remote power resources to electricity load centers in the eastern half of the U.S. could cut consumers’ electric bills by $100 billion and decrease the average electric bill rate by more than one-third, according to a report called “Consumer, Employment, and Environmental Bene­fits of Electricity Transmission Expansion in the Eastern U.S.” that was released last October by Americans for a Clean Energy Grid, Grid Strategies and energy grid modeling firm Vibrant Clean Energy.

Second, because many of the projects, especially big wind farms, are slated to be built in rural areas, the interconnection queue backlog blocks job creation and economic development in those areas. Building the needed transmission infrastructure in just the eastern half of the U.S. could generate up to $7.8 trillion in investment in rural America and create more than 6 million net new domestic jobs, according to “Consumer, Employment, and Environmental Bene­fits of Electricity Transmission Expansion in the Eastern U.S.”

Third, nearly 90 percent of the projects on hold due to the interconnection backlog are wind and solar generation and energy storage, meaning that major efforts to decarbonize the grid require reducing the backlog.

To do that, the report recommends that FERC discontinue the policy of having the builders of new generation foot most of the bill of connecting it to the grid. In fact, it argues that the policy actually violates FERC’s “beneficiary pays” principle and therefore is no longer just and reasonable, putting it in violation of the Federal Power Act, which created FERC’s predecessor.

Until a few years ago, the report says, interconnection charges for most new renewable generation projects were less than 10 percent of the total project cost. Since then, the report says, those charges have increased to 50 percent and up. The reason is that the transmission network’s capacity has been used up to the point that almost all new renewable generation projects require increasing the network, not just building the infrastructure needed to connect the projects to the network.

To remedy that, the report says, RTOs and ISOs could conduct comprehensive transmission planning to identify the transmission infrastructure that needs to be built to connect many new energy projects to the grid and deliver the greatest benefits for consumers.

FERC, the report says, “should fundamentally reform the regional and inter-regional transmission planning process to require broader pro-active and multi-purpose transmission planning.”

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